Service industry loans hit all-time high in Q2

Aug 29,2019

Service industry loans have reached an all-time high amid a weakening economy and rising costs stemming from higher minimum wages.

According to Bank of Korea on Wednesday, the overall balance of business loans as of the second quarter of this year amounted to 1,163.1 trillion won ($957.7 billion). In the second quarter alone, 22.2 trillion won of fresh loans were borrowed, a 13.5 percent increase from 19.6 trillion won in the first quarter.

Loans borrowed by self-employed businesses in wholesale, retail and restaurants saw a particularly sharp rise, the balance of which hit 703.1 trillion won as of the second quarter, marking the first time the balance of loan’s borrowed from the service industry has exceeded 700 trillion won.

Between April and June, 16.2 trillion won of fresh loans were borrowed, a 63.6 percent increase compared to the 9.9 trillion won of fresh loans borrowed in the first quarter.

It’s a stark contrast to the manufacturing industry whose fresh loans actually shrunk 38 percent in the second quarter from the previous quarter. In the second quarter 3.9 trillion won of fresh loans were borrowed.

The balance on combined loans borrowed by wholesale, retail, lodging and restaurant businesses saw the biggest increase since related data began being compiled in 2008.

The total balance of these businesses’ loans amounted to 213.6 trillion won, while 7.8 trillion won of fresh loans were added compared to the previous quarter.

Wholesale and retail businesses borrowed 6 trillion won of fresh loans, while lodging and restaurant businesses added 1.8 trillion won of fresh loans between April and June.

Concerns are being raised on the increase in working capital loans. The balance of such loans amounted to 671.2 trillion won, or 57.7 percent of overall loans.

In the first quarter of the year, fresh loans borrowed for such expenses amounted to 11.8 trillion won. This increased to 15.3 trillion won in the second quarter.

Working capital loans borrowed by the service industry surged from 4.8 trillion won in the first quarter to 11 trillion won in the second quarter.

However, working capital loans in the manufacturing industry fell from 4.6 trillion won to 3.5 trillion won in the first two quarters of the year. Facility investment loans also shrunk from 1.9 trillion won to 500 billion won, indicating manufacturers’ worries about the weakening economy.